The
Incoterms (International
Commercial Terms) is a
universally recognized set of
trade terms brought out by the
International Chamber of
Commerce (ICC) in Paris.
They clearly define the buyer
and seller’s trade contract
liabilities and are considered
to be a cost-saving tool.
Incoterms are used throughout
the world and are accepted by
banks, customs authorities, all
types of carriers,
transportation intermediaries
and financial institutions.
The Incoterms were first
published in 1936 and have been
regularly updated following the
changes in the international
trade needs, till their latest
version in 2002. The
International trade terms are
grouped in four categories: E,
F, C and D, each one indicated
by the first letter of the
acronym.
Below is a list of the most
common Incoterms:
EX- WORKS (From
factory or warehouse):
The term EXW is commonly used
between the manufacturer/ seller
and export-trader/ buyer, and is
considered to be the minimum
obligation of the seller among
all other Incoterms. Under EXW,
the seller is not even
responsible for the cost of
loading the goods on the vehicle
provided by the buyer, unless
otherwise agreed in advance.
Therefore, the buyer has to bear
the full cost and the potential
risks involved in bringing the
goods from the EXW location to
the ultimate destination.
FCA (Free Carrier):
In
Free Carrier, the seller/
exporter/ manufacturer clears
the goods for export and then
delivers them to the carrier
specified by the buyer at the
“named place”. If the named
place is the seller’s factory,
the seller will be in charge of
loading the goods onto the
transport vehicle. If the named
place is any other location, the
seller will not be responsible
for the transportation of goods.
P.S: A carrier can be a shipping
line, an airline, a trucking
firm, a railway or sometimes a
freight forwarder.
FAS (Free
Alongside Ship):
Under this term, the seller
clears the goods for export then
places them alongside the vessel
at the “named port of shipment”.
The buyer will be responsible
for the loading fee, the main
carriage, the cargo insurance
and other costs implicated.
Letters of credit can also be
used in the payment terms of FAS
transactions.
FOB (Free On
Board):
In
Free On Board, the seller clears
the goods for export, takes
charge of the costs and risks
involved and delivers the goods
on board the vessel. This term
is used only for ocean or inland
waterway transport.
Once the cargo has crossed the
“ship’s rail”, the buyer bears
all costs and risks.
The main difference between FAS
and FOB is that under FAS term,
the buyer is required to clear
the goods for export and pay the
cost of loading them.
CFR (Cost and
Freight):
Under CFR, the seller clears the
goods for export and is
responsible for delivering the
goods past the ship’s rail at
the port of shipment. He also
takes charge of the costs
associated with transport of the
cargo to the named port of
discharge.
However, once the goods pass the
ship’s rail at the port of
shipment, the buyer assumes
responsibility for risk of loss
or damage, as well as any
additional transport costs.
CIF (Cost,
Insurance and Freight):
CIF and CFR are similar with one
difference: the seller is also
responsible for procuring and
paying marine insurance in the
buyer’s name for the shipment.
The buyer or importer will be
responsible for the import
customs clearance and other
costs and risks.
DDP (Delivered
Duty Paid):
The seller clears the goods and
makes them available to the
buyer at the named place of
destination, cleared for import
but nor unloaded from the
transport vehicle.
The exporter assumes therefore
all responsibilities for
delivering goods, including
important clearance, duties and
other costs payable upon import.
DDU (Delivered
Duty Unpaid):
The seller also clears the goods
for export and makes them
available to the buyer at the
destination place. However,
cargo remains uncleared for
import. The buyer bears the
import customs clearance,
duties, administrative charges
and any other costs upon import
as well as the transport to the
final destination.
The above-defined terms are a
brief summary of the Chamber of
Commerce Incoterms in their
latest publication.
There are some other terms
issued by the ICC but they are
not as frequently used as the
ones just mentioned. These terms
are:
-
CPT (Carriage Paid To)
-
CIP (Carriage and Insurance Paid
To)
-
DAF (Delivered At Frontier)
-
DES (Delivered Ex Ship)
-
DEQ (Delivered Ex Quay) |